Unemployment Rate Falls Raising Hopes of a Recovery

2 Positive Indicators give Hope

According to the Department of Labor, the jobless rate fell from 10.2 to 10 percent in October. This rate was better than expected and has spurred hope that a more permanent recovery may be on the horizon. In addition, the number of underemployed Americans fell as well from 17.5 to 17.2 percent. Underemployed workers are those workers who are working part time, but want to work full time. The combination of these two numbers is significant in that they are independent indicators of positive economic activity. More impactful is the fact that they were both unexpected by analysts. Two independent indicators both showing positive is good cause for optimism. If fourth quarter numbers come out positive again, then long term recovery can be seriously discussed.

False Hope Breeds Caution

Unfortunately, the trumpets of recovery have been sounded before, only to fall silent with the next economic report. One reason that analysts have had trouble recognizing real recovery from a brief positive blip is the depth of this recent recession. Even with the drop in unemployment, more than 15 million Americans remain out of work. Moreover, since the recession started, the unemployment rate has more than doubled from 4.9 percent two years ago. To gain an understanding of the depth of this recession, history can lend some perspective. Unemployment can be seasonal and cyclical, but long term unemployment of six months or more is a good indication of serious trouble. Today, the number of Americans unemployed for at least 28 weeks is 5.9 million, the highest number since 1948 when this statistic began being tracked. Overall, this is the worst recession since the 1930’s according to economists. These numbers indicate the depth of economic stagnancy pervading the current economy. This also illustrates why it has been so difficult for even the best economists and analysts to accurately interpret economic indicators which has led to proclaiming false starts for real economic recovery.

Still Falling, Just not as Fast

When the unemployment rate drops, many people interpret that as meaning that people have stopped losing their jobs. That is an overly simplistic view of the job market. A drop in unemployment just means that more people were hired than laid off. In November, employers cut 11,000 jobs compared to 111,000 jobs in October. This seems like a big drop, but only resulted in a .2 percent improvement. Regardless of how small the improvement looks, this is still the best showing in the unemployment rate since December of 2007.

Timing is everything

One caution among many is reading too much into employment numbers in the fourth quarter. The number of jobs cut was the lowest since 2007, in the fourth quarter. Holiday hiring can skew employment numbers and give an overly positive read on the economic recovery. The problem is that after the buying season many of these new hires could be back in the unemployment line. On the upside, the slowdown in the rate at which jobs were cut was also seen in the industrial sector. This is especially positive since that sector has been hardest during the recession.

Cautiously Optimistic

The seriousness of the current recession is hard to grasp for even the most well trained economists. There seem to be some indicators in troubled sectors that show signs of recovery, which is very encouraging. However, caution is still the guiding force.

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